Question 1

The statement of financial position is regarded as the most significant financial statement, which is why it is commonly listed first in a complete set of financial statements.

Accepted Answer

A) True 
 B)False

Question 2

Explain the difference between a current asset and a non-current asset and the difference between a current liability and a non-current liability. Why is this classification important?

Accepted Answer

Non-current assets are all those that are not classified as current. Current assets are those that meet the following characteristics: (a) the entity expects to realize or use the asset in its normal operating cycle; (b) the entity holds the asset primarily for trading purposes; (c) the entity expects to realize the asset within one year after the reporting period; or (d) the asset is cash or a cash equivalent. The exception is when the cash or cash equivalent has been designated or restricted in such a way that the cash cannot be exchanged or used to pay off debt or settle other liabilities during the subsequent reporting period. Common current assets are cash, receivables, inventory, prepayments, and financial assets that are held for trading purposes. Other non-cash assets that are not part of an entity's normal operating cycle must be realized within 12 months after the reporting period to be classified as current.
Non-current liabilities are those that are not classified as current. Current liabilities meet one or more of the following characteristics: (a) the entity believes the liability will be settled within the normal operating cycle period; (b) the entity holds the liability primarily for the purpose of trading; (c) the obligation to settle the liability must be fulfilled within a year of the end of the reporting period; (d) the entity cannot defer settlement of the liability past the end of the subsequent period. Liabilities often considered current are trade payables and some accruals part of working capital used in an entity's normal operating cycle. Other liabilities such as certain financial liabilities, the current portion of non-current financial liabilities, and bank overdrafts should be settled within 12 months of the reporting period are also classified as current (even though they are not part of working capital). An entity can control use of its current assets, but is limited by its contractual obligations regarding current liabilities.
The usefulness of a statement of financial position when assets and liabilities are classified as current and non-current. For example, investors and creditors rely on the current/non-current classification when assessing the liquidity of an entity.

Question 3

Which of the following is not characteristic of a current asset?

Accepted Answer

A)   The entity expects to realize or use the asset in its normal operating cycle
B)   The entity holds the asset for capital purposes
C)   The entity expects to realize the asset within one year of the reporting period
D)   The asset is cash or a cash equivalent
E)   All of the above are characteristics of a current asset.F) B) and D)
G) A) and D)

Question 4

Which of the following is true about materiality?

Accepted Answer

A)   Materiality should be considered from the perspective of management.
B)   A line item that is individually material is aggregated with other items in the financial statements or notes.
C)   When assessing materiality of prior period errors, the effect on profitability trends should not be considered.
D)   Judgment is required to determine whether prior-period errors are material because even immaterial prior-period errors will impact users' decisions made on the basis of the financial statements.
E)   None of the above.F) C) and D)
G) B) and D)

Question 5

Entity A manufactures inventory. Entity A holds raw materials for 3 months, and it usually takes 4 months to sell the finished goods when completed. If the production process takes 6 months to complete the inventory, and it takes 1 month to collect cash on receivables, what is the normal operating cycle of Entity A?

Accepted Answer

A)   6 months
B)   9 months
C)   13 months
D)   14 monthsE) B) and C)
F) A) and D)

Question 6

Which of the following requires significant judgment?

Accepted Answer

A)   Whether information is material and needs to be presented separately in the financial statements
B)   The entity's ability to continue as a going concern
C)   Identifying and presenting discontinued operations in the statement of PL and OCI
D)   Whether presentation of assets and liabilities in order of liquidity is more relevant and reliable than the current/non-current classification
E)   All of the above.F) A) and D)
G) C) and D)

Question 7

Equity capital and reserves are disaggregated into paid-in capital, share premium, and reserves.

Accepted Answer

A) True 
 B)False

Question 8

Each of the following is a standard or interpretation issued by the International Accounting Standards Board, except:

Accepted Answer

A)   International Financial Reporting Standards (IFRS) 
B)   International Accounting Standards (IAS) ;
C)   Accounting Standards Updates (ASU) 
D)   IFRIC Interpretations
E)   SIC InterpretationsF) None of the above
G) A) and E)

Question 9

Which of the following financial statement items are not allowed to be offset in the financial statements?

Accepted Answer

A)   Accounts receivable and allowance for doubtful accounts
B)   Financial assets and financial liabilities
C)   Property, plant, and equipment and accumulated depreciation
D)   All of the above may be offset in the financial statementsE) B) and D)
F) C) and D)

Question 10

Which of the following would likely be classified as other comprehensive income (OCI) ?

Accepted Answer

A)   Share of profit/loss of joint ventures accounted for using the equity method
B)   Foreign currency translation gains/losses
C)   Tax expense
D)   Impairment lossesE) A) and B)
F) A) and C)

Question 11

Which of the following is not true about information presented in the statement of financial position or in the notes?

Accepted Answer

A)   An entity will disclose further subclassifications of the line items based on the requirements of IFRS as well as the size, nature, and function of the amounts involved.
B)   An example of subclassification for Property, Plant, and Equipment is "land and buildings."
C)   Entities with share capital will disclose the number of shares authorized, issued and fully paid, and issued but not fully paid
D)   Entities without share capital (such as partnerships and trusts)  are not required to make any disclosures.E) A) and B)
F) B) and D)

Question 12

A complete set of financial statements includes the statement of financial position, the statement of comprehensive income, the statement of changes in equity, and the statement of cash flows.

Accepted Answer

A) True 
 B)False  False

Question 13

An entity is required to prepare a complete set of comparative financial statements at least

Accepted Answer

A)   Quarterly
B)   Semi-annually
C)   Annually
D)   BiannuallyE) A) and B)
F) A) and C)

Question 14

The accrual method of accounting furthers management's discretion in determining profit for the period.

Accepted Answer

A) True 
 B)False  False

Question 15

An entity is required to make an explicit and unreserved statement of compliance with IFRS in the notes to the financial statements.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following items is not required for a complete set of financial statements?

Accepted Answer

A)   Presentation currency
B)   Level of rounding
C)   Name of the company
D)   The date at the end of the reporting period
E)   All of the above must be includedF) C) and D)
G) B) and E)

Question 17

Changes in equity arising from transactions with owners are presented in the statement and profit and loss.

Accepted Answer

A) True 
 B)False

Question 18

Other comprehensive income (OCI) :

Accepted Answer

A)   Only includes a portion of income.
B)   Never includes any types of expenses.
C)   Is always included in the profit/loss statement.
D)   Two of the above.
E)   None of the above.F) B) and D)
G) A) and B)

Question 19

An entity is not required to disclose in the notes a summary of significant accounting policies so long as the policy choices are consistent with industry practices.

Accepted Answer

A) True 
 B)False

Question 20

An entity may choose to present expenses based on either their nature or their function within the entity.

Accepted Answer

A) True 
 B)False

Exam 4: Presentation of Financial Statements

The statement of financial position is regarded as the most significant financial statement, which is why it is commonly listed first in a complete set of financial statements.

Correct Answer
verified

Explain the difference between a current asset and a non-current asset and the difference between a current liability and a non-current liability. Why is this classification important?

Which of the following is not characteristic of a current asset?

Correct Answer
verified

Which of the following is true about materiality?

Correct Answer
verified

Correct Answer
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Which of the following requires significant judgment?

Correct Answer
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Equity capital and reserves are disaggregated into paid-in capital, share premium, and reserves.

Correct Answer
verified

Each of the following is a standard or interpretation issued by the International Accounting Standards Board, except:

Correct Answer
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Which of the following financial statement items are not allowed to be offset in the financial statements?

Correct Answer
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Which of the following would likely be classified as other comprehensive income (OCI) ?

Correct Answer
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Which of the following is not true about information presented in the statement of financial position or in the notes?

Correct Answer
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A complete set of financial statements includes the statement of financial position, the statement of comprehensive income, the statement of changes in equity, and the statement of cash flows.

Correct Answer
verified
False

An entity is required to prepare a complete set of comparative financial statements at least

Correct Answer
verified

The accrual method of accounting furthers management's discretion in determining profit for the period.

Correct Answer
verified
False

An entity is required to make an explicit and unreserved statement of compliance with IFRS in the notes to the financial statements.

Correct Answer
verified

Which of the following items is not required for a complete set of financial statements?

Correct Answer
verified

Changes in equity arising from transactions with owners are presented in the statement and profit and loss.

Correct Answer
verified

Other comprehensive income (OCI) :

Correct Answer
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An entity is not required to disclose in the notes a summary of significant accounting policies so long as the policy choices are consistent with industry practices.

Correct Answer
verified

An entity may choose to present expenses based on either their nature or their function within the entity.

Correct Answer
verified

Exam 4: Presentation of Financial Statements

The statement of financial position is regarded as the most significant financial statement, which is why it is commonly listed first in a complete set of financial statements.

Correct AnswerverifiedShow Answer

Explain the difference between a current asset and a non-current asset and the difference between a current liability and a non-current liability. Why is this classification important?

Which of the following is not characteristic of a current asset?

Correct AnswerverifiedShow Answer

Which of the following is true about materiality?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following requires significant judgment?

Correct AnswerverifiedShow Answer

Equity capital and reserves are disaggregated into paid-in capital, share premium, and reserves.

Correct AnswerverifiedShow Answer

Each of the following is a standard or interpretation issued by the International Accounting Standards Board, except:

Correct AnswerverifiedShow Answer

Which of the following financial statement items are not allowed to be offset in the financial statements?

Correct AnswerverifiedShow Answer

Which of the following would likely be classified as other comprehensive income (OCI) ?

Correct AnswerverifiedShow Answer

Which of the following is not true about information presented in the statement of financial position or in the notes?

Correct AnswerverifiedShow Answer

A complete set of financial statements includes the statement of financial position, the statement of comprehensive income, the statement of changes in equity, and the statement of cash flows.

Correct AnswerverifiedFalse

An entity is required to prepare a complete set of comparative financial statements at least

Correct AnswerverifiedShow Answer

The accrual method of accounting furthers management's discretion in determining profit for the period.

Correct AnswerverifiedFalse

An entity is required to make an explicit and unreserved statement of compliance with IFRS in the notes to the financial statements.

Correct AnswerverifiedShow Answer

Which of the following items is not required for a complete set of financial statements?

Correct AnswerverifiedShow Answer

Changes in equity arising from transactions with owners are presented in the statement and profit and loss.

Correct AnswerverifiedShow Answer

Other comprehensive income (OCI) :

Correct AnswerverifiedShow Answer

An entity is not required to disclose in the notes a summary of significant accounting policies so long as the policy choices are consistent with industry practices.

Correct AnswerverifiedShow Answer

An entity may choose to present expenses based on either their nature or their function within the entity.

Correct AnswerverifiedShow Answer

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False

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False

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